This week marks the one year anniversary of Bank Transfer Day, the grassroots protest of unfair bank practices that encouraged an estimated 610,000 consumers to move their to a credit union or community bank.
But while Bank Transfer Day mobilized hundreds of thousands of fed up consumers to vote with their feet and leave their big bank, many dissatisfied customers have stayed put even though bank fees have continued to climb.
In July, a Consumer Reports national public opinion poll found that nearly one fifth of consumers had considered switching to a new financial institution in the previous 12 months, but the challenge of transferring automatic payments and other factors kept half of them from making the switch.
Unfortunately, obstacles to switching banks can intimidate even the most determined consumer. All of these hurdles create customer inertia and stifle the kind of competition we need to make banks more responsive to consumers.
Consumers Union's Trapped at the Bank report highlighted the many obstacles consumers can face if they decide to switch banks. Banks lock in customers by encouraging them to use certain services like automatic payments and direct deposits in order to avoid monthly fees. Re-routing automatic payments and deposits into a new account can take four to six weeks and can be daunting and complicated process for some consumers. Research shows that customers who utilize automatic deposits and payments are far less likely to switch accounts.
Having enough money to maintain two accounts during the switching process also can pose a significant barrier. Because switching accounts can take up to six weeks, the only safe bet is to have enough money in both accounts to cover any potential automatic debits. Consumers also may be confronted with fees to close accounts or to transfer money into new accounts.
Figuring out how to make the switch can be confusing for many consumers. None of the top ten largest banks reviewed by Consumers Union provided customers with clear instructions for closing accounts on their web sites or in written account disclosures.
That's why Congress and the Consumer Financial Protection Bureau should consider a number of policy changes to make it easier for consumers to switch banks and to promote fair competition.
- Banks should be required to bear the responsibility for transferring a customer's automatic payments and deposits from the old account to the new account within 14 days
- Banks should provide same-day electronic fund transfers at no cost to consumers
- Check hold times should be reduced so consumers can quickly access deposits in new accounts
- Banks should be prohibited from assessing unfair fees for closing accounts
- Banks should be prohibited from reopening accounts after consumers close them
- Banks should be required to provide clear and accessible account closing procedures
- Bank regulators should examine the feasibility of portable bank account numbers to facilitate easier bank switching.
Consumer frustration has only grown in the year since Bank Transfer Day as bank fees have continued to rise. It's time to make it easier for consumers to move their money so they have a real choice when it comes to where to bank.
Pamela Banks is a senior policy counsel at Consumers Union, the advocacy arm of Consumer Reports.